Guest Post: Keynesian Solutions - After Total Failure -Try, Try Again

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes – The Economic Consequences of the Peace

While Barack Obama vacations on Martha’s Vineyard this week he’ll be thinking about his grand vision to save America – again. There is one thing you can say about Obama – he’s predictable. He promises to unveil his “new” plan for America in early September. The White House said Obama will give a speech after the September 5 Labor Day holiday to outline measures to boost hiring and find budget savings that surpass the $1.5 trillion goal of a new congressional deficit-cutting committee. It is heartening to see that Barack has turned into a cost cutter extraordinaire. He should be an inspiration to the Tea Party, except for one little problem. The plan he unveils in a few weeks will increase spending now and fret about spending cuts at some future unspecified date.

I can reveal his plan today because the White House has already leaked the major aspects of his plan. He will call for an extension of the Social Security payroll tax cut of 2% for all working Americans. This was supposed to give a dramatic boost to GDP in 2011. Maybe it will work next time. He will demand that extended unemployment benefits be renewed. Somehow providing 99 weeks of unemployment benefits is supposed to create jobs. It’s done wonders thus far. He will propose some semblance of an infrastructure bank or tax cuts to spur infrastructure spending. It will include a proposal for training and education to help unemployed people switch careers. He will attempt to steal the thunder from the SUPER COMMITTEE of 12 by coming up with $2 trillion of budget savings by insisting the Lear jet flying rich fork over an extra $500 billion.

You may have noticed that followers of Keynesian dogma like Paul Krugman, Larry Summers, Brad Delong, Richard Koo, John Galbraith, every Democrat in Congress, and every liberal pundit and columnist have been shrieking about the Tea Party terrorists and their ghastly budget cuts that are destroying our economy. They contend the stock market is tanking and the economy is heading into recession due to the brutal austerity measures being imposed by the extremists in the Republican Party. There is just one small issue with their argument. It is completely false. It is a bold faced lie. This is 2011. The economy has been in freefall since January 1. No spending cuts have occurred. Nada!!! As the CBO chart below reveals, the horrendous slashing of government will amount to $21 billion in 2012 and $42 billion in 2013. Of course, those aren’t even cuts in spending. They are reductions in the projected increases in spending. Politicians must be very secure in the knowledge that Americans are completely ignorant when it comes to anything other than the details of Kim Kardashian’s wedding and who Snooki is banging on Jersey Shore.

I’d like to remind the Harvard educated Keynesian economists that Federal government spending is currently chiming in at $3.8 trillion per year. Federal spending was $2.7 trillion in 2007 and $3.0 trillion in 2008. Keynesians believe government spending fills the gap when private companies are contracting. Obama has taken Keynesianism to a new level. Federal spending will total $10.8 trillion in Obama’s 1st three years, versus $8.4 trillion in the previous three years. Even a Harvard economist can figure out this is a 29% increase in Federal spending. What has it accomplished? We are back in recession, unemployment is rising, forty six million Americans are on food stamps, food and energy prices are soaring, and the middle class is being annihilated. The standard Keynesian response is we would have lost 3 million more jobs, we were saved from a 2nd Great Depression and the stimulus was too little. It would have worked if it had just been twice as large.

The 2nd Great Depression was not avoided, it was delayed. Our two decade long delusional credit boom could have been voluntarily abandoned in 2008. The banks at fault could have been liquidated in an orderly bankruptcy with stockholders and bondholders accepting the consequences of their foolishness. Unemployment would have soared to 12%, GDP would have collapsed, and the stock market would have fallen to 5,000. The bad debt would have been flushed from the system. Instead our Wall Street beholden leaders chose to save their banker friends, cover-up the bad debt, shift private debt to taxpayer debt, print trillions of new dollars in an effort to inflate away the debt, and implemented every wacky Keynesian stimulus idea Larry Summers could dream up. These strokes of genius have failed miserably. Bernanke, Paulson, Geithner and Obama have set in motion a series of events that will ultimately lead to a catastrophic currency collapse. We have entered the 2nd phase of the Greater Depression and there are no monetary or fiscal bullets left in the gun. Further expansion of debt will lead to a hyperinflationary collapse as the remaining confidence in the U.S. dollar is exhausted. We are one failed Treasury auction away from a currency crisis.

John Maynard Keynes argued the solution to the Great Depression was to stimulate the economy through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.

It sounds so good in theory, but it didn’t work in the Depression and it hasn’t worked today. It is a doctrine taught in every business school in America with no actual results to support it. Who needs facts and actual results when a good story believed and perpetuated by non-thinking pundits will do? Every Keynesian play in the playbook has been used since 2008. The American people were told by Obama and his Keynesian trained advisors that if we implemented his $862 billion shovel ready stimulus package, unemployment would peak at 7.9% and would decline to 6.5% by today. The cascade of recovery was going to be jump started by a stimulus package that equaled 27% of the previous year’s entire spending. Obama’s complete package was implemented. The outcome was an eye opener. If you show a Keynesian this chart, their response would be: “Imagine how bad it would have been if we didn’t spend the $862 billion.”

John Maynard Obama got everything he asked for in January 2009. He had both houses in Congress and did not need to consult Republicans to pass his Keynesian $862 billion porkulus bill. It seems that $252 billion, or 29% of the package was nothing more than transfer payments. Of course, according to Keynesians, the $252 billion should have had a multiplier effect when it was handed out. I think they were right. Obama was able to multiply the number of people on food stamps in January 2009 from 32 million to the current tally of 45.8 million. The monthly food stamp transfer payment has gone from $3.6 billion to $6.1 billion. Keynesians should be thrilled by this success story.

Obama’s Keynesian dream bill included:

$1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years.

$2 billion for child-care subsidies.

$50 million for that great engine of job creation, the National Endowment for the Arts.

$400 million for global-warming research.

$2.4 billion for carbon-capture demonstration projects.

$650 million on top of the billions already doled out to pay for digital TV conversion coupons.

$8 billion for renewable energy funding.

$6 billion for mass transit that had a low or negative return on investment.

$600 million more for the federal government to buy new cars. Uncle Sam already spends $3 billion a year on its fleet of 600,000 vehicles.

The Department of Education got $66 billion, more than the entire Education Department spent a just 10 years ago. $6 billion of this subsidized university building projects.

Obama declared in December 2008 there were shovel ready projects across the land that would create immediate jobs. Too bad he didn’t tell the American public only $30 billion of the $862 billion mountain of pork was earmarked for highways and bridges. Obama declared his stimulus would create 3.5 million jobs, later changed to “create or save”. There were 144 million Americans employed in January 2009. Today, there are 139 million Americans employed. Obama gives the term “success story” a new meaning. The Keynesians had their chance and now they want a do-over. Sorry, that isn’t how it works in the real world. As Speaker Nancy Pelosi put it, “We won the election. We wrote the bill.” No truer words have ever been spoken.

As we know, that was only the beginning of our Keynesian debt nightmare. Let’s do some critical thinking and assess the results of Obama’s other Keynesian solutions:

The Homebuyer Tax Credit cost taxpayers $27 billion or $43,000 per additional house sold. The Keynesians handed 3.9 million people $7,000 to do something they were going to do anyway. They lured first time home buyers into the market. Since the credit expired, median home prices have fallen $15,000 and continue to fall. This wonderful government program has created more underwater homeowners and did nothing to stabilize the housing market or home prices.

Cash for Clunkers cost taxpayers $3 billion. An incremental 125,000 cars were sold at a cost of $24,000 per car. This Keynesian dream program lured more people into debt and warped the used car market by destroying used cars and driving up prices for poor people who couldn’t afford a new car. There were no carryover benefits except for government controlled union car makers.

Obama’s HAMP program allocated $11 billion to supposedly allow 4 million homeowners to modify their mortgages, reduce their monthly mortgage payments and avoid foreclosure. HAMP has proven a colossal failure that has done more to harm than help debt-laden homeowners. It has achieved slightly more than 500,000 permanent modifications, 40% of which the Treasury expects to default. Far more borrowers have dropped out of the program than successfully achieved permanent loan modification. These borrowers, along with those who later default, will often be left with larger outstanding debt, worse credit scores, and less home equity.

Obama even handed $30 billion to the largest homebuilder corporations in the country, run by billionaires like Bob Toll, by allowing them to carry back their losses and wipe out tax liabilities in prior years. This did wonders for the housing market. It did stimulate bonus payments for the CEOs of these companies.

Billions of tax revenue was lost by handing out $1,500 tax credits for people to buy new windows, doors, and appliances they were going to buy anyway. We are still waiting for that multiplier effect.

The usual suspects are now declaring that we can’t make the same mistakes FDR made in 1937 resulting in a dramatic downturn in 1938. As usual, the Keynesian storyline about the Great Depression is false.

Depression Keynesian Fallacy

One thing to remember is that while the depression that started in 1929 may have come to a bottom in 1933, it took a long time to recover. There was a cyclical recovery in 1937, and why was that? Roosevelt had the good luck to have been elected dead flat at the bottom. So it wasn’t his policies that cured the last depression, it was luck and good timing, combined with the fact that they were creating a lot of money after Roosevelt took the dollar off the gold standard. That resulted in a false recovery, from 1933 to 1937, and it went downhill again. – Doug Casey

Keynes? theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is, policies that acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run. Keynes had too much faith in the wisdom of politicians and Federal Reserve bankers. They mastered the art of deficit spending, but fell a little short on paying off the debts during boom times. About $14.6 trillion short so far.

The Great Depression had the same origins as our current Greater Depression. The three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the haves got richer, millions of have-nots lived below the household poverty line of $2,000 per year. The rip roaring party came to an abrupt end in October 1929, with the Great Stock Market Crash.

Between 1929 and 1932, the market fell 89% from its high. The Keynesian storyline is that Herbert Hoover’s administration did nothing to try and revive the economy. It took Franklin Delano Roosevelt and his New Deal Keynesian policies to save the country. It’s a nice story, but entirely phony. Between 1929 and 1933 the Hoover administration increased real per-capita federal expenditures by 88%, not exactly the austerity measures described in fantasy stories concocted by the mainstream media.

Bureau of Economic Analysis National Income and Product Accounts Table

The Great Depression officially lasted from 1929 until 1940. What is not well known is that real GDP was at the same level in 1936 as it had been in 1929. In no small part because real GDP soared by 37% between 1933 and 1936. The unemployment rate in 1929 was 5%. In 1936, even after real GDP had recovered to pre-depression levels, the unemployment rate was still 15%. It spiked back to 18% in 1938 and stayed above 15% until World War II. Tellingly, in 1936, private domestic investment was 21% below the level of 1929.

By contrast, government expenditures surged by 46% between 1929 and 1936. With the government creating new agencies and employing people in make-work projects, private industry was crowded out. The extensive governmental economic planning and intervention that began during the Hoover administration swelled drastically under Roosevelt. The bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending on public works prolonged the Great Depression.

The facts powerfully contradict the notion endorsed by Krugman and other Keynesian devotees that the supposed 1937-38 Depression within the Great Depression was caused by Roosevelt slashing spending. In fact, real GDP only dropped by 3.5% in 1938 and rebounded by 8.1% in 1939. What actually collapsed in 1938 was private investment, which fell 34%. By contrast, government spending declined by only 4.5% in 1938, proving that Roosevelt did not drastically cut spending. To the extent that he eased up on the accelerator, it was by cutting back on useless jobs programs like those provided by the Works Progress Administration and the Public Works Administration. Austerity did not derail the recovery.

The reason private investment collapsed in 1938 was Roosevelt’s anti-business crusade. He denounced big business as the cause of the Depression. In March 1938, FDR appointed Yale University law professor Thurman Arnold to head the antitrust division of the Justice Department. Arnold soon hired some 300 lawyers to file antitrust lawsuits against businesses. Arnold launched cases against entire industries, with lawsuits against the milk, oil, tobacco, shoe machinery, tires, fertilizer, railroad, pharmaceuticals, school supplies, billboards, fire insurance, liquor, typewriter, and movie industries.

Paul Krugman’s recent veiled yearning for a war or staged crisis to revive the economy through spending to fight the war is another Keynesian fallacy perpetuated by the mainstream media. These mindless non-critical thinking talking heads actually believe World War II ended the Great Depression. Doug Casey obliterates their fantasy:

“People say that World War II cured the Depression, but in fact, it made it worse. As bad as things were in the ‘30s, they were worse during the war in the ‘40s. You couldn’t get shoes. You couldn’t get gasoline. You couldn’t get tires. You couldn’t get just about anything that was being used for the war. The war prolonged and deepened the Depression. The thing that ended the Depression was not the war but the fact that since people could not consume, they were forced to save. That delayed consumption resulted in a huge amount of savings, and that’s what caused the recovery in the late 1940s.”

The fact that the entire world was left in smoldering ruins after World War II, except for the United States, may have contributed slightly to our recovery from the Great Depression.

According to Murray Rothbard, in his book America’s Great Depression, the artificial meddling in the economy was a disaster prior to the Great Depression, and government efforts to prop up the economy after the crash of 1929 only made things far worse. Government intrusion delayed the market’s correction and made the road to complete recovery more difficult. Today’s myopic politicians, captured monetary authorities and Harvard trained Keynesian economists have learned the wrong lessons from the Great Depression. The upshot will be a second Greater Depression and further impoverishment of the dwindling middle class. The implications of more wasteful government stimulus programs, more quantitative easing and more debt are: further debasement of the currency and ultimately a hyperinflationary collapse. The great economist John Maynard Keynes understood currency debasement:

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

How to Cut Spending While Actually Increasing Spending

“Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” – John Maynard Keynes – The Economic Consequences of the Peace

Obama’s plan to revive America will be announced with great fanfare in two weeks. We know for sure he will propose these two brilliant ideas:

Extending unemployment compensation again at a total 2012 cost of $65 billion. Because we know that paying people to not work creates millions of jobs. The multiplier effect is off the charts. Why work when you can watch The View and chow down on cheese doodles purchased with your SNAP card for 99 weeks?

Extending the payroll tax cut at a total 2012 cost of $100 billion. This was supposed to give a dramatic boost to the economy in FY11. Have you noticed any boost? A Keynesian will argue, “Imagine if we hadn’t done it.” A critical thinker might ask: Is it prudent to increase the unfunded Social Security liability by another $100 billion and hand the bill to future unborn generations, so we can buy a new IPod 2 today?

It is a certainty that Obama will announce an infrastructure bank or some variation to spur investment in our national infrastructure that is crumbling by the day. Top Keynesian, and architect of the Obama stimulus plan, Larry Summers has been blathering about this for months. Even though the first stimulus plan was sold as an infrastructure plan, they mean it this time. As usual, the storyline is false. You can’t drive anywhere in this country and not be inconvenienced by road widening, bridge building, and repaving projects. The Keynesians act like infrastructure projects are highly unusual and need new Federal dollars to jump start the engine. The fact is that every Federal, State and municipal government has a capital fund that is budgeted every year. Most of the projects have multiple year lead times. They require planning and coordination. The reason we have 160,000 structurally deficient or obsolete bridges and thousands of miles of crumbling underground pipes is because politicians decided to spend their budgets on something more useful like train museums, murals, turtle crossings, and studies on the mating habits of ferrets.

The country has lost approximately seven million jobs since 2007. Five million of the jobs were lost in sales industries and manufacturing industries. There are 139 million jobs in America today and only seven million, or 5% of all jobs, in the construction industry. How do Keynesians expect to revive the job market with an infrastructure bank that will benefit, at most, 5% of the U.S. workforce? Let me guess. They will propose billions of new spending on education so they can retrain sales clerks from Wal-Mart into architects for designing 160,000 new bridges.

Barack Obama will stand in front of the American people and lie. He is a born again cost cutter, who will propose new spending. As anyone with a calculator can figure out, the two guaranteed proposals from his upcoming speech will increase spending by $165 million in 2012. If you go back to the handy dandy chart from the CBO showing the “horrific spending cuts” from the recent debt ceiling deal you will see these “cuts” total $122 billion between 2012 and 2014. Barack will wipe out all of the supposed savings through mid 2015 with his new Keynesian plan. But don’t worry. His plan will have huge spending cuts in 2017 after his hoped for 2nd term is finished. Keynesians always promise to cut spending once their current emergency ends.

The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do.

The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. You have to give the Keynesians credit. Despite the utter absolute failure of every scheme they have implemented, they will worship their models and theories until they successfully collapse our economic system. Then they’ll blame the Tea Party terrorists who foiled their plans.

None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead. The American people have failed to accept the consequences of their actions. And now we are going to pay a heavy price as Ludwig von Mises predicted:

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”

Keynesian economics has the answers for deflation. Friedman has the answers for stagflation.

Unfortunately, we were in a deflation, which was aided by fiscal stimulus, and mismanaged by monetary stimulus, creating stagflation. Now we need to put the Keynesian toolkit away, and take up Friedman.

The problem is we can't raise interest rate to reign in the money supply, unless we upset the mortgage market, and destabilize all the deleveraging going on.

So the US is gone donkey kong

Thus we may be in a liquidity trap, not from Keynesian economics, but the mismanagment of it!

Keynsianism is the ONLY form of economics adopted by the world's top economists at ivy league schools. There is a reason for this - the US has a consumer economy, not an export economy. There is no point in saving in a consumer economy because this only stimulates production. A consumer economy needs perpetual monetary and fiscal stimulus to stimulate consumption. The Chinese are TOTALLY dependant on US consumption of their exports. If the doomers have their way, the entire world economic system will collapse.

by the way, million dollar bonus. you're full of shit. learn your geopolitics. chinese factories could easily convert to making weapons. or they could sell their output to countries with less devalued currencies. OR to the domestic market. you don't think the chinese will pay handsomely for an ipad?

I agree. I think these are agents from the ministry of misinformation. You know George Orwell was right. No right minded person could believe the rubbish these twats are writing, they must be being paid to cynically spread this garbage.

It's perfectly clear that deficits will have to grow to infinity. And it's even better that none of the consumer goods are manufactured in the USA. Unemployed persons are probably the only demographic who can devote themselves wholeheartedly to increasing consumption, so it is only fair and bullish that there should be more of them. All signs of capital flight are transitory.

Keynsian economics is popular because it is the preferred economics of the Governments and ruling elite. Never mind whether it makes sense or is feasible or sustainable. It simply enables these power structures to continue growing.

Why all the thumbs down- he's right. All economies except Marxism( thats not an economic model either) are based on a variety of pyramid schemes and persistent "growth." there is no sustainable economic mkdel- its all based on inflation, growth, begger thy neighbor and resource consumption until it collapses. Theres a machine burn down and restart- a la Rome or World War 2. Japan has managed in a negative growth environmwnt because credit and mo ey and growth can fester or foster elsewhere. Now we have a global trainwreck- a huge credit and money implosion. Krugman and his martian attack are the only thing that can save us now. What a screwball

Because captialism is not a pyramid scheme and doesn't require constant growth. Capitalism is nothing more than individuals consuming less than they produce, using their leftover wealth to invest in the creation of other wealth that is in demand in order to satisfy human needs. Whether this creates growth depends upon each person's time preference (consume today, or save it for tomorrow) and other factors as the durability of the wealth produced (lettuce vs. lead, for example).

As Mises (and Rothbard) demonstrate, even an isolated Crusoe would engage in capitalism by choosing to make a fishnet, but only after saving enough fish to survive while he made it.

Last night, Turd Ferguson apologized to his readers for being MIA during the day, as he had spent the entire day figuring out where gold was headed overnight. His conclusion: with gold at $1912, he said it would be "allowed" to run higher, perhaps to $1936 or even to $2000 by Wednesday, then the cartel would instigate margin hikes and bring it back down.

Today, gold did the exact opposite. Right now, it's running ~$100 in the opposite direction. $1833 instead of $1936.

As it turns out, at the time of his posting, $1912 was - ironically - the exact top. Instead of gold heading toward $1936 (god only knows where he got this precise price from) it went straight to the $1830's.

That's a $100 error in less than 24 hours!

*LOL*

For someone who runs a blog predicting the hourly movements of gold, he's made some huge errors lately. First, he advised his readers NOT to buy the summer gold rally. Now, he tells them it's headed to $1936 or $2000 by tomorrow, and it actually goes $100 in the OPPOSITE direction.

I'm still waiting for you to criticize Obama for taking more money from Wall Street than any other candidate. You seemed to forget about that the other day. But no worries, you can explain what a sell-out he is in your reply.

Oh yeah I know, there's fuck all difference between the mainstream candidates for either party - they're both bought and paid for by the same Wall St interests. Both Rothbard and Quigley wrote on this.

But I want that idiot shill to criticize Obama in actual writing. He won't do it.

All of Turd's posts are short term (usually hourly) price predictions, based off very amateur chart analysis.

And, from what I can tell, his calls are no different than dart throws.

Fortunately for Turd, his blog is full of brain-dead doomer goons who don't pay any attention to his 24 hour predictions. That's the irony of the whole thing.... he posts hourly charts for traders to a bunch of doomer goons who bury metals in their backyard. It's like the wrong audience attending the wrong show, and everyone's ok with it. Turd just keeps posting nonsense, and his readers just keep ignoring it.

He also said that the desperate cartel, who is losing control, will slam metals down into the Benocide circus act. So taking out a sentence or two to serve your own agenda, like JPM often does, is way too Blythish.

The $1900-$2000 range will be a very difficult battle. It will take at least 3 or 4 attempts to break $2000. Of course, if there is QE3, then $2500 will be a reasonable year-end target, as the USD will likely be devalued another 20%.

Anybody ready for some Austrian economics yet? If so vote for Ron Paul. Think Dr. Paul might shake things up a little bit when he puts Austrians at treasury, the fed & dept of justice?

Mises said in 1931 -

"Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand."

Austrian School is by far the best. 150 years and 6 generations of economists who are spot on but never get a say in policy because its bad news for the self interests of policy makers! Its akin to Turkeys voting for Thanksgiving or Christmas!

Austrians never get a majority of votes because beneficiaries of Keynesian largess win today by simple mathematics every popular vote. So the question is: How can Austrian be brought to power? Revolte, at least of taxpayers and creditors !!!

I know, Ron Paul is a dumb old son-of-a-bitch who doesn't know shit about economics or the markets. Why don't you compare Dr. Paul's investment portfolio & results with the other republican candidates & Obummer?

In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime. The reason why these odious debts cannot attach to the territory of the state is that they do not fulfill one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the State. Odious debts, contracted and utilized for purposes which, to the lenders' knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation which has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.

Interesting. And who decides whether a previous regime's debts were odious? Whether the lender was misled by the regime in power as to the purpose of loan and the intent of the borrower for the real use of the funds? Does the new regime just make a Declaration of Previous Odiousness and tack the 95 theses why on the door of the Treasury and post new hours of operation?

Or do we move the trial to The Hague? Or the General Assembly?

When was the last time a new regime declared a previous regime's debt odious?

"Keynes' theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is, policies that acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays."

In other words, Keynes theory has never really been tried since no government I know of has ever followed it. I'm definitely not a Keynesian, but rather than saving in goods times to stimulate in bad, governments deficit spend in good times and deficit spend to an even greater extent in bad. Thus, the theory has not been implemented in practice and all of these so-called Keynesian jackasses don't even deserve that title.

Keynes (like all theorists) gets a bad rap when a religion is labeled (correctly or incorrectly) as representing a part of their theory. I'm no Keynesian either, and infinite growth is impossible in a closed system so it doesn't matter anyway. Time for some new theory.

Oh, and before anybody says that Henry George has been refuted because of "what economists now know," remember those same economists have brought us what is probably the first catastrophic failure on a truly global basis. Including Keynes.

It does not matter whether blue helmets get stationed in your neighborhood, or China sinks into the ocean rendering all Amerikan Citizens instantly employed;

We are not going to forget this.

If the World's greatest army can't hold the ground in Afpak, what makes the limousine liberal money worshipers think they can hold the country together with 30+% unemployment, debt bondage, school loans and DHS?

It does not matter what any of these characters do, think or destroy.

They will never hold the ground.

Every active and pissed off Citizen needs to muster in front of their county court house on the 1st of every month to get organized - not be violent. Eff the Republicans, Democrats AND the co-opted Tea Party. Its Citizens verses Corporate interests. The far "Left" and the far "Right" are saying the same thing. Together they are the majority. Take It Back in 2012!

Great article ! i luved all the history . fractional reserve banking, the biggest fraud & scam of the past 300 years. print the money, just make an entry, & then expect the borrower to go out & do real work to pay it all back. the money should never have been lent in the first place; when i was a kid no banking institution would have ever lent unlimited credit to me !

Three years of Obama - the VERY BEST the Democrats have ever had to offer - has given us: - $14 trillion deficit- US in a depression- ruined economy- US credit rating downgraded - ignores the War Powers Act- gas/food/clothing prices skyrocketing- 5 wars, one with a record death toll- foreign policy disasters?- raiding the public pension fund to avoid the debt ceiling?- lost 600+ seats for his own party - poll numbers in the toilet - 44 million Americans on food stamps- Over half the states suing to get out of Obamacare. ?- 1 in 4 mortgages under water - ATF gunrunning scandal unfoldingANYBODY BUT OBAMA!

Why would I blame a powerless puppet? His daddy had more say during his term than he did. His goal was to know nothing, and he did a splendid job of it. Better yet, why not move higher up than that? Like say, Kissinger? There's probably not a lot of operatives that outrank him.

My reply was to Van Halen above. He is blaming everything except the next coming of jesus on Obama. I just figgered a poke in the eye was called for. Being a natural contrarian, I will take the side of any argument, even a losing one.

this article hiys the nail on the head. there is no commom sense in a comsumer based economy. spend, spend, spend and when it goes bad we will borrow and spend some more. thats basically what we've been doing for thirty plus years.

I finally understand the function of today's economists. It has taken me a while to figure it out. Money has two functions: a medium of exchange and a store of value. The economist's task is to figure out the maximum he can steal from that store of value.

Can he inflate by 2% a year, or should it be 3%? Should we inflate by printing money and giving it our friends or by using it to reduce the interest rate to zero?

Economists are the thief/experts that government people use to steal the people's money savings.

If the story of the current U.S. economy were made into a movie, it would look something like "55 Days at Peking." A ragtag group of ordinary people — America's consumers — is besieged by a rampaging horde, the forces of recession. To everyone's surprise, they have held their ground.

But they can't hold out forever. Will the rescue force — resurgent business investment — get there in time?

The screenplay for that kind of movie always ratchets up the tension. The besieged citadel fends off assault after assault, but again and again rescue is delayed. And so it has played out in practice. Consumers kept spending as the Internet bubble collapsed; they kept spending despite terrorist attacks. Taking advantage of low interest rates, they refinanced their houses and took the proceeds to the shopping malls.

But predictions of an imminent recovery in business investment keep turning out to be premature. Most businesses are in no hurry to go on another spending spree. And those that might have started to invest again have been deterred by sliding stock prices, widening bond spreads and revelations about corporate scandal.

Will the rescuers arrive in the nick of time? Not necessarily. This movie may not be "55 Days at Peking" after all. It may be "A Bridge Too Far."

A few months ago the vast majority of business economists mocked concerns about a "double dip," a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.

On the surface, the sharp drop in the economy's growth, from 5 percent in the first quarter to 1 percent in the second, is disheartening. Under the surface, it's quite a lot worse. Even in the first quarter, investment and consumer spending were sluggish; most of the growth came as businesses stopped running down their inventories. In the second quarter, inventories were the whole story: final demand actually fell. And lately straws in the wind that often give advance warning of changes in official statistics, like mall traffic, have been blowing the wrong way.

Despite the bad news, most commentators, like Mr. Greenspan, remain optimistic. Should you be reassured?

Bear in mind that business forecasters are under enormous pressure to be cheerleaders: "I must confess to being amazed at the venom my double dip call still elicits," Mr. Roach wrote yesterday at cbsmarketwatch.com. We should never forget that Wall Street basically represents the sell side.

Bear in mind also that government officials have a stake in accentuating the positive. The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble.

But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.

As the stock markets were crashing, taking with them the remaining life saving of untold tens of thousands, Obama was hosting his own birthday celebration, which was an event of epicurean splendidness. The shamelessness of the event was that it was not a state dinner to welcome foreign dignitaries, nor was it to honor an American accomplishment – it was to honor the Pharaoh, Barack Hussein Obama. The event's sole purpose was for the Pharaoh to have his loyal subjects swill wine, indulge in gluttony and behavior unfit to take place on the property of taxpayers, as they suffer.

I told him I said "Obama go to your inauguration in sack cloth and ashes and appear in public like that until the National Debt is paid way down. That's what the Biblical Kings would do and the white Republicans expect no less.

And be sure your hair shirt pajamas is plenty itchy. And don't use more than 2 squares of tollet paper. The Republicans got spies everywhere. Especially near the crapper.

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

From the last two paragraphs of Gold and Economic Freedom by Alan Greenspan. 1966.

The three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the haves got richer, millions of have-nots lived below the household poverty line of $2,000 per year. The rip roaring party came to an abrupt end in October 1929, with the Great Stock Market Crash.

with a statement like this:

the artificial meddling in the economy was a disaster prior to the Great Depression, and government efforts to prop up the economy after the crash of 1929 only made things far worse. Government intrusion delayed the market’s correction and made the road to complete recovery more difficult. Today’s myopic politicians, captured monetary authorities and Harvard trained Keynesian economists have learned the wrong lessons from the Great Depression.

Earth to Jim Boy, it was the Fed pumped up easy money and millions of farmers moving to the city after the wide spread use of tractors and other mechanized farming technology that caused the depression, not "laissez-faire" economics, you dolt. How can you quote Doug Casey and not realize this? Are you some kind of statist hack?

So Doug Casey agrees with you that "lassez faire" republican policies caused the depression? I sincerely doubt it. Next thing I know you'll probably be saying that Doug Casey drives a holy Honda pious like you (yes, I am a BMW driver, a one series with a 2liter diesel, twice the car of your honda and just as efficient).

So Jim, forgive me for thinking that you have some kind of hidden agenda. At least a Jesse or an Yves can proudly be welfare state statists. You on the otherhand try to have it all ways, and you end up smelling like a watermellon.

Fuck your hidden agenda. Ideologues like yourself ignore the facts because they interfere with your storyline. That is why my articles irritate douchebags like yourself because you can't refute my facts.

This article hits the nail on the head because it speaks the truth. However sound economic policies will never be enacted because the top 1% want to revert back to the middle age feudal society when the Lords and Nobles controlled all the wealth.

What we have is a reversion to when your wealth and prosperity was given to you at birth and a common man could never rise to the ranks of a noble.

The American Revolution changed all that and tried to give people a country where any single man could become anything he wished and survive on his own without fear of a tyrannical government. We had the former system for thousands of years. Common man rule lasted less than 100 years and began its end after the Civil War.

For about 20 years following WWII the country reverted back to the age of the common man and the middle class enjoyed its greatest period of prosperity. TPTB could not let that continue because a hundred million moderately wealthy citizens would have no need for the ruling elite and they would not need a strong central government.

The greatest generation shunned the stock market that burned their parents and vowed to not live the life of excess greed that lead to the market crash of 29. But their children went to college and learned of the Great Con. That the path to wealth lay with credit and the stock market. Why work hard to generate income when you can just swap paper and become wealthier than you could ever imagine.

The European banking elite that were burned by the American Revolution would have their revenge and once again put themselves at the top of the world oligarchy. Once their plan is finalized there will be nowhere else on Earth to go. The elite will never again let the common man have any power or any wealth again.

Of course we can prevent this but it would require the streets to run red with billionaire blood.

ROFL so much wrong in this article it's not even funny. Well a little.

Roosevelt was re-elected due to the following of a cyclical cycle?

How about you also forget to realize that JMK was not Roosevelt. Roosevelt was not JMK. Roosevelt HATED JMK. JMK latched onto Roosevelt's ideas and skewed them like economists working for monetary banksters do.

WPA jobs were worthless? Gee, um no. They weren't worthless. Not when people are still walking on sidewalks built by them. Cars are still on roads built by them. So on and so forth x1000.

But they weren't Wall street jobs, thus they were worthless, huh.

You know what's funny, is the idiots keep saying that Obama is being like Roosevelt and following Keynes.

Obama is NOTHING like Roosevelt, who did not follow Keyenes.

Roosevelt did Glass-Steagall

Obama did Dodd-Frank

Dodd-Frank did jack shit

Glass-Steagall would bankrupt the corrupt fools in wall street overnight.

This article also takes a look at America outside of the context of the world depression going on. What was happening in Europe in the 30's? Oh yeah.

The answer isn't Keynesian and the answer is not Austrian.

Sorry I won't throw Keynes over the side without their tag along Austrians.

Because ALL schools of MONETARY thought are BULLSHIT.

Jim Quinn just is on another monetary team. I say the whole MONETARY LEAGUE sucks donkey balls...and is inherently ANTI-AMERICAN.

Yankees or Mets? Who fucking cares, when the problem is baseball.

Niners or Raiders? Who fucking cares, when the problem is football.

Austrian or Keynesian? Who fucking cares, when the problem is MONETARISM.

Glass-Steagall

AMERICAN CREDIT SYSTEM

Quit with the monetary lens bullshit.

There is plenty of work to be done, that needs credit to be uttered for it to happen. That is how you build an economy, off real shit.

But first, cancel the fraudulent debt, which just happens to be now, the vast majority of it. It shouldn't exist, and we sure and the hell ain't paying it off, even if we cut-print-tax.

Will any of the following work?

Print to pay off fraudulent debt? No

Cut to pay off fraudulent debt? No

Tax to pay off fraudulent debt? No

Okay...how about 2 of 3?

Print and cut to pay off fraudulent debt? No

Print and tax to pay off fraudulent debt? No

Cut and tax to pay off fraudulent debt? No

Okay how about all 3?

Print, cut, and tax to pay off fraudulent debt? NO

So no matter what the fuck you do, you ain't paying off this debt. Plus why should we? It's fucking fraud!

The only way out is to cancel the fraudulent debt. Which is something not Keynes did. Not Obama has done. But what Roosevelt did.

We built alot of great stuff with his programs, and we need those today. Except what form will those take...and see if you see any real tangible benefit to it (rather than paying off 0's and 1's in bankster's computers).

Mag-lev?

Fusion?

NAWAPA?

Space?

Healthcare facilities?

Schools?

Waterways?

...and the list goes on.

ALL of this stuff will provide tangible benefits. That PRIVATE BUSINESS can link onto, and make money. This is how you build an economy. You use gov't to create the conditions (REAL TANGIBLE CONDITIONS) for PRIVATE BUSINESS to flourish. That's what you fucking do. You don't play the banksters game of killing ourselves and our real economy off for Keynesian or Austrian dumbass dogma.

Jim Quinn needs to get his head out of his ass, because he completely misses the point of things. It's all about the REAL ECONOMY. WITH REAL BENEFITS. TANGIBLE ONES.

It's not about cyclicality, austerity, private investment numbers. Quit using MONETARY metrics. They'll leave you at the altar every time.

Monetary metrics are BULLSHIT, subjective, and prone to error in their timeframe, let alone 80 years later....and coupled with foreign ideological dogma of a like MONETARY system school. Quit the bullshit Quinn. Your dogma isn't much, if any better than Keynesian dogma. You'd fumble just as often if running with the ball than a Keynesian would.

“.... governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily... . ---John Maynard Keynes

Thing is, everybody knew about this "secret" method of confiscation all along, Lenin pre-dated Keynes. But it was John M. Keynes who gave it a name and legitimized this form of confiscation, essentially lagalizing it and making it the official policy of the state.

When Krugman calls for more spending, he is really calling for more confiscation from the little people. So far obama has confiscated about 16.5% of everything held in USD.

Despair.com is great--Is Krugman's pic from there? If so, needs h/t. otherwise, needs a h/t (even if it is u)

Walking through your piece, seems to me that doing a comparison of "New Deal" policies to "New New Deal" policies would be rather effective: a) "Corporations hoarding cash", b) regulatory uncertainty/hostility/"anti-trust", c) Unions came out of V.1 way ahead, normal folk, not so much, d) '46 Congress undid a lot (but not enough) of the New Deal V.1, recession resulted, but them folks were tough-->then things got better.

Morgenthau's contemporaneous admission of failure is always needed in this discussion.

Political weakness in conjunction with economic mushy-headedness leads to no good end.

I need to get back to work, but this is a good overview. I'll be spreading the link around.

And the Republicans were so frugal. WTF is the difference--they're all getting richer while your repulican ass is getting poorer. If you don't have any gold or silver you're fucked and you better believe that.

While you have a very valid point on the Republicants, the DemoNcrats have them beat hands down.

Every major give away program, was instituted under them.The SS Trust Fund box was unlocked by them,the Great Society was implemented by them,the Weflare state as we know it was implemented by them, etc.,etc,etc.

Our resident Vactioner In Chef, has managed to dispose of nearly 4 Trillion, in under 4yrs.

Bush Jr. had 9-11,Iraq (from the go), and Trashcanistan, and he still managed to spend in 8yrs not a lot more than the Vacationer in Chief has in under 4yrs.

$787 Billion dissapeard on his watch(where oh where did it go?), and 1.2T was forked over secretly to Wall Street.

It's all about trajectory, my friend. Look at the charts -- any charts -- and you'll see a vertical slope. There is no person, of any political persuasion, who would have been effective in the face of that (and lived). Once in the White House and privy to the Book of Secrets, the POTUS becomes IMPOTUS.

BTW "Every major give away program" includes the Medicare drug program? The same one that Bush gave birth to? Don't use absolutes unless you're really right.

Interesting article .....but it contains the answer to its own question.

"Keynes had too much faith in the wisdom of politicians and Federal Reserve bankers. They mastered the art of deficit spending, but fell a little short on paying off the debts during boom times. About $14.6 trillion short so far."

Keyne's ideas were and are still fundamentally sound. They simply haven't been applied the way they were supposed to be. First and foremost that deficit spending translate into surplus budgets during prosperous times. As a Canadian, I vividly remember finance minister Paul Martin taking enormous political heat for doing just that during the 1990's. Canada fared better than most as a result but these results took time to take shape.

We live in a time when the quick fix is the order of the day and policy decisions are supposed to yield results the next quarter rather than over the medium term. As a result, we exarcebate the situation without addressing the core issue which is excessive debt, no matter who holds it.

The reason private investment collapsed in 1938 was Roosevelt’s anti-business crusade. He denounced big business as the cause of the Depression. In March 1938, FDR appointed Yale University law professor Thurman Arnold to head the antitrust division of the Justice Department. Arnold soon hired some 300 lawyers to file antitrust lawsuits against businesses. Arnold launched cases against entire industries, with lawsuits against the milk, oil, tobacco, shoe machinery, tires, fertilizer, railroad, pharmaceuticals, school supplies, billboards, fire insurance, liquor, typewriter, and movie industries.

you talk about gettting rid of the rot, etc. getting rid moniopolies and industries that are entrenched by politicl gAIN IS A GOOD IDEA. putting people in jail who deserve to be there is a good idea. This simple paragr4aph takes you over the edge of rationality. In fact you argue almost same in your piece, letting banks go out of business, breaking up too big to fail, etc.

any readers think Obama has done a good job of going after teh fraud on wall street, and can we trust opur economy with the fraudsters in place because of government largess?

And our children would be reading, "The reason private investment collapsed in 2010 was Obama’s anti-business crusade." Putting crooks in jail is "anti-business", not putting them in jail is "not going after the fraud". JFC, somebody's gotta get a solid story here and stick to it.

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." -Treasury Secretary Andrew Mellon's advice to President Hoover, November 1929

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes – The Economic Consequences of the Peace"

That's the plan. Economic destruction of the US. If you look at it from the point of view of the banksters/Fed?IMF, all is going according to plan. Destroy the global economy and pick up what's left for pennies.